A utility company is considering the following plans to provide a certain service required by resent demand and the respective growth of demand for the coming 20 years. Plan R requires an immediate investment of 500,000 in property that has an estimated life of 20 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be ₱60,000. Annual property taxes will be 2% of the first cost. Plan S requires an immediate investment of ₱300,000 in property that has an estimated life of 20 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance during the first 6 years will be ₱50,000. After 6 years, an additional investment of ₱400,000 will be required having an estimated life of 14 years with 40% terminal salvage value. After this additional property is installed, annual disbursements for operation and maintenance of the combined property will be ₱60,000. Annual property taxes will be 2% of the first cost of property in service at any time. Money is worth 14%. What would you recommend
A utility company is considering the following plans to provide a certain service required
by resent demand and the respective growth of demand for the coming 20 years.
Plan R requires an immediate investment of 500,000 in property that has an estimated life
of 20 years and with 20% terminal salvage value. Annual disbursements for operation and
maintenance will be ₱60,000. Annual property taxes will be 2% of the first cost.
Plan S requires an immediate investment of ₱300,000 in property that has an estimated
life of 20 years with 20% terminal salvage value. Annual disbursements for its operation
and maintenance during the first 6 years will be ₱50,000. After 6 years, an additional
investment of ₱400,000 will be required having an estimated life of 14 years with 40%
terminal salvage value. After this additional property is installed, annual disbursements for
operation and maintenance of the combined property will be ₱60,000. Annual property
taxes will be 2% of the first cost of property in service at any time. Money is worth 14%.
What would you recommend?
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